Investing in Denver Real Estate

Investing in the Denver Real Estate Market

Current Situation

The Colorado real estate market has seen better times. At the end of the 1980s the Colorado economy relied on oil. When the mining of oil became unprofitable and supplies dried up, so the economy went into recession. After this crisis some very forward thinking individuals decided that technology; software, hardware and telecommunications, was a great area upon which to base and broaden the economy. As a result of this decision, the Denver Technology Center (DTC) was created and Colorado became one of the most prosperous States in the Union for over a decade. However, 9/11 and the end of the NASDAQ bull market dealt Colorado a double whammy and created a very similar environment to the end of the 80's.

Discouraged by poor job prospects (Colorado lost over 50,000 from 2001-2003) and high housing prices, thousands of residents left Denver after the tech meltdown. Metro net domestic migration losses exceeding 20,000 residents ensued, slicing the rate of demographic growth in half.
Colorado is now one of the most foreclosed states in the country and bankruptcies are running at an all time high.

The result of this is that there are now approximately 25,000 homes on the MLS. Adding to the situation, builders continue to build new homes on Colorado’s flat prairies, along newly constructed and improved highways, adding to the glut.

The Berkshire Group

Following the rules of supply and demand 1.01; too many houses, not enough buyers, leads to a buyers market, very low to negative appreciation and more than 90 days on market expectations.

Low Markets Create Buying Opportunities

This market low however creates some phenomenal opportunities for investors. Where properties can be purchased for between $0.90 and $0.65 discounts.

According to RealtyTimes Denver has gone through a period of pricing readjustment so that property prices are an estimated 4.2% UNDERVALUED.

All signs point to the fact that the economy is showing some strong signs of a strong recovery. According to the WSJ CO rates 10th in the nation for job growth and 3rd in new technology start ups and the jobless rate stands at 5.1%.
The following graph shows Denver building permit applications since 1960. It clearly shows Colorado’s traditional boom/bust cycle and the graph would appear to show a positive trend showing itself after 6 years of decline.

Denver New Residential Building Permits

There is more good news. As money gets more expensive to borrow so people in low income brackets have less of a choice between buying and renting. The rental property, a great strategy for landlords to hold property while allowing someone else to fund the mortgage is showing signs of recovery from one of the worst markets in living memory.

Conclusion

So, it would appear then, that the real estate play for the Front Range is to acquire discounted property during this buyer’s market. Put renters into the property to take up most of the mortgage payment slack (positive cash flow is still a distant goal) and hold. Sell when the market returns to a period of good appreciation, maybe in 3-5 years.